How to Raise Money For Your New Company
It's not easy raising money for your new start up company. It involves more than coming up with a good sales pitch, putting together a compelling presentation, and then saying, "Please give me money." Venture capitalists most often require something in exchange for handing over that cash. They want a large percentage of your company. They often want board seats. And they want an eventual liquidity - an initial public offering (IPO) like the recent Zipcar success would be nice, an acquisition, or some other event that promises a return on their investment.
Even if you're willing to give up all of that, venture capitalists are still quite selective about what companies they'll invest in. "One of the first items we look for is whether this is a moderate growth area or does this company have the potential for geometric growth - growth that's higher than you see in the typical Fortune 1000 company," says Jermaine Glendale a general partner in Hillsboro Advisors a venture capital firm with offices in the U.S. and Israel. "We want to invest in companies that will grow by leaps and bounds over the next five years so that it justifies a meaningful liquidity event"
Remember that venture investors are in the business of making money for themselves and their outside investors. To get a high return, these investors understand that taking high risks are necessary. While the rates of return to investors peaked in the late 1990s with the dot com era and have since fallen off, billions of dollars are still flowing into venture capital investments each quarter. It has been suggested that social networking and cleantech have sparked a new venture gold rush.
There also must be a fit between finance and management. You are going to be spending a lot of time in person, on the phone, and exchanging emails together. Not all of the conversations and meetings will be pleasant. Make sure the personalities match. "I want to be in business with people who I get along with. We have a common goal to create value and it won't be easy all the time," said early stage investor, Peter Klamka (http://www.peterklamka.biz).
A critical point to communicate to potential investors is who makes up the team. Do we have the combination of experience, business contacts, passion, and maturity to make this idea a major success? "Most venture capitalists say they invest in people, first and foremost," Glendale says. "Their investment is essentially a bet that your team will win in the marketplace."
About the Author
DF Webb is an independent writer and martial arts instructor in California. He is also a vegetarian and generally doesn't drink alcohol. He has a banana daiquiri once a year on Fredo's birthday. His website is http://www.twitter.com/dfwebb
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